Bad loans mainly due to diversion of funds, says EY report

The banking sector’s bad loan situation is getting grimmer with non-performing assets ballooning and outpacing credit growth. The gross NPAs of 19 banks in absolute terms touched a high of ₹2.6-lakh crore in the September quarter compared with ₹2.3-lakh crore in the three months ended March 2015. This is the highest in the past 10 years.

The total gross non-performing assets of 19 banks, which form part of indices such as Nifty Bank and Nifty PSU Bank, went up 13.3 per cent in the September 2015 quarter from the March quarter. In the same period, total gross advances rose only 2.5 per cent.

“Gross NPAs for banks, including restructured assets, stand close to 12 per cent — a level seen back in 2002-03,” said Abhinesh Vijayaraj, an analyst at Chennai-based Spark Capital.

Industry experts and analysts are not hopeful of the NPA situation improving until economic growth picks up.

All-round slowdown

In the June quarter, GDP grew 7 per cent compared with 7.5 per cent in the preceding quarter. While services PMI rose to an eight-month high of 53.2 in October, the manufacturing PMI was at a 22-month low of 50.7 in October, down from 51.2 in September.

Sectors such as steel, mining, aviation, power, textiles and real estate are still under stress either due to global factors — such as the the recent China slowdown— or domestic reasons like governance issues, lack of tariff hikes (in power), land acquisition hurdles and the correction in real-estate prices. “A turnaround will take time because NPAs are mainly due to stalled projects. The ball is in the government’s court as rate cuts will help only to a little extent,” said Madan Sabnavis, chief economist at CARE Ratings.

Of the 19 banks, gross NPAs of only two — Allahabad Bank and Punjab National Bank — dipped in the September quarter over March.